PayPal branches out from eBay's money tree

PayPal branches out from eBay's money tree

7th Aug 11:48

E-commerce payment company PayPal has grown organically on the back of eBay, but apparently no longer.

PayPal President Scott Thompson said here at the RBC Capital Markets conference Wednesday that by year's end, his company will derive more total payment volumes from its Merchant Services than from eBay buyers and sellers.

Merchant Services is the name for the payment software PayPal provides to third-party sites like Starbucks, Delta Airlines, and American Outfitters.(In the last quarter, eBay buyers and sellers---long the bread and butter of PayPal's business--racked up about 51 percent of the payment volumes.)

That's a big shift for a company that was bought by eBay only six years ago.

"We've had organic growth with eBay, but as merchants migrated off the eBay platform (by building their own sites), they've brought us with them," Thompson said while speaking to a group of fund managers and venture capitalists at RBC's technology, media, and communications conference.

That trend also couldn't come sooner. PayPal is facing increased competition from the likes of Google's Checkout and newcomer Amazon.com. eBay's retail rival, Amazon, recently introduced an e-commerce payment service called Checkout by Amazon.

To be sure, Thompson was giving a virtual sales pitch to investors. But the story is impressive. PayPal now serves 33 percent of the top 100 e-commerce sites in the United States, according to Thompson.

In the second quarter, PayPal reported net revenue of $602 million, a 33 percent rise from the previous year. And it reported a total payment volume in the quarter of more than $14 billion, or 35 percent growth.

PayPal's international picture is also promising. He said the company expects that growth overseas will put PayPal's international business over that of its U.S. business next year. "By the back half of 2009, the international business will exceed our North American business."

As for mobile, PayPal has been investing in the market for the last three years, but the company's offering hasn't caught on in the United States, Thompson said. As a result, the company changed its mobile strategy in the last year.

It plans to focus on bringing services to underdeveloped payment markets. Those might include China or Russia, which don't have robust electronic infrastructures.

"In Russia, lots of people stand in line to pay their bills every month. That's a perfect use case for PayPal," he said.